2018 Shift in Auto Lending

In 2017, we saw banks begin to pull back from auto financing, especially in the subprime markets. At the same time, captive lenders utilized manufacturer incentives to increase new vehicle loan volume, and credit unions increased their market share in both the new and used space by filling in the gaps that the banks left behind.

In 2018, we’re seeing a very similar pattern as banks continue to pull back and manufacturers continue to provide deep incentives to make new vehicles more affordable. The National Automobile Dealers Association predicts that 16.7 million new and 15.3 million used vehicles will be sold in 2018. While the new vehicle projection is slightly down from 2017, the used vehicle projection is actually higher than 2017 numbers.

In recent years consumers have been relying on leases and longer-term loans to afford vehicles with a price tag that keeps going up. This has resulted in large amounts of off-lease vehicles hitting markets in 2016, 2017, and in 2018. Meanwhile, the deep incentives provided by manufacturers are undermining vehicle values. The combination of the incentives and record off-lease vehicles hitting the market results in used vehicle values declining – hence the projected increase in used vehicle sales.

As more consumers look to purchase a potential surplus of pre-owned vehicles, auto lenders need to ask themselves how they can help dealers incentivize consumers to purchase with them. We all know dealers are more likely to send business your way if you act as a partner in accomplishing their goals.

This includes the staples of staying engaged with the dealership, improving loan decision times, and working with dealerships to provide financing that covers both the cost of the vehicle and their ancillary products. However, when everyone is focusing on the basics, what are you doing to differentiate your institution with both dealers and consumers?

To address this question, many lenders are looking at outside-the-box solutions, like offering complimentary consumer protection products on their loans. Consumer protection products, like a vehicle service contract or vehicle return protection, help lenders address the challenges of a flat market, gain better control over delinquency rates, and provide dealers an additional opportunity to increase their profit margin.

Flat Market Challenges and Auto Dealer Profit Margin

Providing complimentary consumer protection products on your auto loans with your dealership partners gives them a marketable differentiator with consumers. Starting the finance discussion by informing consumers that their approved auto loan comes with complimentary benefits, F&I managers have a better ability to upgrade consumers to their F&I products for greater protection. This helps dealers meet their product penetration goals and increase their back-end profit margin on every deal they finance with you. It also helps generate better customer retention rates as consumers receive the benefits to offset the cost of a mechanical breakdown.

Auto Loan Delinquency Rates

Consumer protection products, like a vehicle service contract or vehicle return protection, provide consumers with the ability to either stay current on their auto loan payments, or return their vehicles with no damage to their credit, should unforeseen circumstances occur, like job loss.

Take the vehicle breakdown example. The average vehicle repair bill is around $1000. Without a VSC, most consumers struggle with coming up with that money. All too often, they choose not to pay another bill, like their auto loan, to get their vehicle back up and running. Then, before they know it, they are on their way to default and delinquency. With a VSC, consumers most often pay a small $50 deductible to repair their vehicle, with little to no impact to their monthly expenses, meaning they can still make their auto loan payment. Which sounds better to you?

With more than 40 years helping dealers and lenders achieve their profitability goals, EFG Companies structures its products and services to provide value to you, your dealership partners, and the end-consumer. Our unmatched client engagement model goes well beyond simple product innovation to mitigating liability through superior claims processes, and continuous training and compliance practices. Contact us today to turn economic uncertainty into another avenue for profit.